alleryWhen a dominant low-cost firm sets the price and the smaller fringe firms simply accept and follow it, the market exhibits:
APerfect competition
BPrice leadership
CBilateral monopoly
DFirst degree price discrimination
Answer & Solution
Correct answer: B. Price leadership
1. In some oligopolies one firm is dominant relative to numerous small fringe firms.
2. The dominant firm sets a price taking the fringe's behaviour into account.
3. The fringe firms then accept and follow whatever price the leader charges.
4. This arrangement is called price leadership.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.27_
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